Smart grid is a vital national infrastructure, the security of which is of great importance. Wireless communication plays an important role in the development of smart grid, and it is an important guarantee for system engineering such as ubiquitous environment awareness, embedded computing, network communication and network control of smart grid. Nevertheless, the openness of wireless electromagnetic propagation also brings serious severe challenges to smart grid while breaking through the limitations of traditional physical connected devices, In order to ensure the communication security for the wireless terminals of smart grid, an enhanced physical layer security strategy based on key generation is proposed in this paper. The strategy comprehensively utilizes the physical identification of the smart grid equipment, the random characteristics of the wireless channels, and the timestamp function, which can not only realize the “One-Time-Pad” encryption, but can also identify the legitimate network equipment, thus guaranteeing an efficient and reliable secure transmission from the perspectives of communication security and equipment identification. Simulation results show that the proposed security strategy can effectively safeguard the communication security, which can be used not only to degrade the performance of passive wiretapping, but also to maintain high robustness against jamming attacks.